First quarter growth figures, released this week, have stirred fresh debate among economists and politicians. The business community was apparently not impressed by the data and stock markets continued to tumble. While the government takes some pride in the rebounding GDP growth, others maintain that it is insignificant, unsubstantiated and impalpable for the average Iranian. Differing expectations from the effects of growth and the ongoing underestimation of the damage from the recession in 2012 and 2013, lie at the heart of the argument.
The Statistical Center of Iran announced a 4.4% expansion in economic output in the first quarter of the 1395 fiscal year, (March 20-June 21) on Sunday. The accelerated growth was propagated as something that would put to rest worries about plunging back into recession. Growth had slowed to 0.9% in the prior fiscal year (ended in March 2015) leading to consternation about into recession, especially as industrial output shrank 2.8%.
But the numbers were soon questioned. Pundits were quick to point out that these were just figures with no meaningful effect on the livelihoods of consumers. They argue that the 8.8% surge in industrial output during the quarter came from growth in the oil industry and other industries at best remained stagnant.
True. But what also deserves mention is the need to be objective and reasonable in our analysis. The simple case here is that there was no impressive development to turn the struggling industries around before or during the period.
The biggest breakthrough for the Iranian economy was the lifting of the international sanctions related to its nuclear program in January. Since then oil output has almost doubled to 2.1 million barrels per day. According to SCI data, the petroleum industry grew 57% in the first quarter. This should silence some critics who claim that the nuclear agreement that led to the lifting of sanctions had no positive impact.
Also, agricultural production increased 4% during the period. According to economist Saeed Leylaz, wheat production has risen to more than 13 million tons from six million four years ago. “Furthermore, car sales have increased 60% so far in the current Iranian year compared to the corresponding period three years ago.” Leylaz hammered government critics in an interview with IRNA this week. He contends that just these two examples show that incomes have risen for some sections of the Iranian people.
But what business people pose has merit of its own. The growth came mostly from oil, while industries continue to suffer. What it means is that the government is getting some badly needed cash. For oil sales to help fiscal spending and trickle down to other parts of the economy at least a year is needed.
For some time, easy growth will be possible as factory output recover to pre-crisis levels. Many analysts do not see that as real growth, as it does not entail any productivity increase or expansion of current infrastructure.
Meanwhile, Iranian banks remain paralyzed by an unknown amount of toxic debt. The government is still postponing repayment of its dues. Wage growth and as a result consumer demand will remain weak. Last but not least, the residual US sanctions on non-nuclear related issues will continue to hinder Iran’s reintegration into the global economy.
The truth is that this is just a short list of the baggage the Iranian economy is carrying. The damages of debasing the currency, overregulation, state control, corruption and wasteful fiscal policies enacted by former government, along with the most stringent international sanctions regime in history will take many more years to be undone.
Some in the government overoptimistically reckon we will be back to 2011 levels of income by next year. It will take far longer than that. For now we should celebrate the influx of oil money. Hopefully we use it wisely this time.
